Challenges for the ad-funded business model

 The 'ad funded' model has taken a bit of a beating this year. The big question is whether it can continue in a recession-hit media world.

Last month Blyk (the ad-funded mobile operator) withdrew their consumer offer and just this week Joost (the online video company) announced that market conditions meant that it too was moving away from a consumer focussed ad-funded model. These were both businesses heralded as at the frontier of the new media world and examples of how an ad-funded business model could be used to deliver new services to consumers on new platforms.

But that model is under severe threat.

Recessionary-driven declines in media spends have driven massive losses and cuts at ITV and focussed attention on the long-term viability of Channel 4. Newpapers too are suffering. And, to put this into a digital context, the first quarter of this year saw a 5% drop decline in online advertising.

So a new model has to be found as only the largest traffic sites can continue a purely ad-funded approach.

Surely it's got to focus on subscriptions. However, the print media industry let the genie out of the bottle with free content - and I think it's hard to see consumers willingness to pay for something that they have considered free for some time - unless there is an industry-wide approach. But who will blink first?

There are some interesting models out there. Spotify the online music service uses a blend of ad-based revenues and a subscription model. However, many people have asked how Spotify can actually make a profit and there is a good interview with Daniel Ek (the Spotify CEO) on TechRadar - although Ek does not directly answer the question as to how its business model really works. The core question for Spotify and others is what % of users will pay the subscription model when the free model is pretty good. The ads aren't really intrusive enough to make me switch to a premium version.

An alternative option is using micropayments for content. Here users buy premium content in return for just a couple of pence. However will users really want to make that 'purchase decision' every time they want to access/read a piece of content? And how will that work practically? The user would already have had to buy-in to the site producing that content and lodged some form of payment (in the same way that works for iTunes). The micropayment model has been mooted for over a decade - but is still not gained much traction. Perhaps the media downturn will see it dusted it off and reconsidered.